Siltronic AG (WAF) Earnings Call Transcript & Summary

Hello, everyone, and welcome to the presentation of Siltronic's Q2 2026 Results. Please note that this call is being recorded and streamed on Siltronic's website. The call will also be available as an on-demand version later today. Your participation in this call implies your consent to this. At this time, I would like to turn the conference over to Verena Stutze, Head of Investor Relations and Communications of Siltronic AG. Please go ahead.

Thank you, Cynthia. Welcome, everybody, to our Q2 2026 results presentation. This call will also be webcast live on siltronic.com. A replay of the call will be available on our website shortly after the end of the call. Our CEO, Michael Heckmeier; and our CFO, Claudia Schmitt, will give you an overview of our financials, the current market development and our guidance. After the presentation, we will be happy to take your questions. Please note that management comments during this call will include forward-looking statements that involve risks and uncertainties. For a discussion of risk factors, I encourage you to read the safe harbor statement contained in today's press release and presentation. All documents relating to our H1 '26 reporting are available on our website. I now turn the call over to Michael for his remarks.

Thank you, Verena, and a warm welcome also from my side. I would like to begin with the key messages of today's call. Demand is gaining traction. We see a market recovery in the 300-millimeter business. In 200-millimeter conditions are still sluggish, were still sluggish in the first half, but we are expecting a clear volume improvement for the second half of the year. At the same time, the market pattern remains uneven, although demand for AI-related applications is strong, prices are still lagging behind. In Q2 '26, wafer shipments increased and our financial performance developed in line with our expectations. Two important milestones during the quarter were the successful completion of our capital increase and our reentry into the German MDAX. Both reflect investors' confidence in Siltronic's long-term performance. Finally, based on the improved wafer market sentiment for H2, we have slightly edged up our sales guidance for 2026. Now let me give you an update of our performance in the second quarter. Q2 showed a clear sequential improvement. Sales increased to EUR 322 million, which was 5% above first quarter sales. This was driven by higher wafer area sold as the demand recovery continued to gain traction across large parts of the wafer industry. Profitability improved slightly as well as EBITDA increased to EUR 69 million, and the EBITDA margin reached 21.6% compared with 21.2% in Q1. EBIT remained broadly stable at minus EUR 52 million as a slightly higher depreciation largely offset the EBITDA improvement. CapEx amounted to EUR 39 million and continues to focus predominantly on our 300-millimeter activities. Net cash flow improved compared with the first quarter, but remained negative at EUR 27 million, reflecting our continued cash outflow for investments. During the quarter, we also successfully completed our capital increase, further strengthening our financial position and increasing liquidity to EUR 650 million at the end of June. Let me now hand over to Claudia for a more detailed review of the financials.

Thank you, Michael. A warm welcome from my side as well. I will now take you through the financial development in the second quarter in more detail. In June, we successfully completed an accelerated bookbuilding transaction, raising gross proceeds of EUR 273 million through the placement of new shares, representing 10% of our existing share capital. The placement price was EUR 91 per share, corresponding to a discount of around 7% to the previous day's closing price. Given that Wacker secondary placement had established a market reference point only a few weeks earlier, we achieved pricing underscores the strong investor appetite for this transaction. The offering was very well received and multiple times oversubscribed, attracting strong demand from both existing and new investors, including long-only investors from Europe and the United States. We are also pleased by the meaningful support from our anchor shareholder, HAL. We chose this timing because we identified an attractive market window supported by improving demand fundamentals, AI-driven growth opportunities and strong investor interest. Importantly, the transaction was not undertaken to address a near-term funding requirement. Rather, it reflects a proactive step to further strengthen our strategic and financial flexibility and to position Siltronic well to capture attractive future growth opportunities. The use and timing of the funds will depend on market developments and pricing trends. The strong performance of our share price, combined with the increased free float, supported our reentry into the MDAX at the end of June. Now turning to our operating performance. The second quarter showed a clear sequential improvement. Sales increased by 4.9% quarter-over-quarter to EUR 322 million. This improvement was driven by higher wafer area sold, while pricing, product mix and FX remained broadly stable compared with the previous quarter. Despite slightly higher depreciation, gross profit improved from negative EUR 26 million to negative EUR 14 million. The higher wafer area sold resulted in improved utilization and fixed cost absorption. As loading continues to increase, the fixed cost burden associated with our expanded production capacity in Singapore is gradually declining. We expect the fab to continue progressing towards group margin levels by the end of this year. The positive impact from higher shipments was partially offset by a swing in valuation effects from hedging activities. At the end of the first quarter, higher oil price assumptions resulted in a positive valuation effect from hedges related to electricity supply contracts with an oil price component. In Q2, however, easing energy and raw material markets led to a negative valuation effect. The combined FX and hedging result moved from positive EUR 11 million in Q1 to negative EUR 3 million in Q2. Despite this headwind, EBITDA increased from EUR 65 million to EUR 69 million with the EBITDA margin improving to 21.6% from 21.2% in Q1. Besides improved fixed cost absorption, this development also benefited from certain costs that are typically incurred only in the first quarter. EBIT remained broadly stable at negative EUR 52 million as higher depreciation largely offset the EBITDA improvement. Net loss improved slightly from EUR 67 million to EUR 63 million, also supported by a somewhat stronger financial result. Overall, the quarter confirms that improving demand is translating to higher sales and gradually improving operating leverage. At the same time, prices and product mix have remained a challenge. Michael will discuss these trends in more detail later. Let's now turn to the key developments on our balance sheet. As of the end of June, total assets amounted to EUR 4.9 billion compared with EUR 4.8 billion reported at year-end 2025. Fixed assets decreased by EUR 93 million, mainly reflecting depreciation exceeding CapEx. Working capital rose during the first half of the year. Inventories increased, reflecting a targeted build to support improving demand and prepare for higher shipment volumes. Receivables were also higher, primarily due to the timing of customer payments around the reporting date. Liabilities and prepayments decreased by EUR 45 million, mainly due to the settlement of trade payables related to CapEx, including investments already incurred in previous periods. Cash and securities increased to EUR 650 million, supported by the proceeds from the capital increase and partly offset by ongoing cash outflows for investments. Equity increased to EUR 2.2 billion, resulting in an equity ratio of 45% compared with 43% at year-end 2025. Net financial debt declined to EUR 692 million. Based on our current assumptions, we continue to see potential for further improvement towards the end of the year. Overall, our balance sheet remains solid. The capital increase has further enhanced our financial position and flexibility. Let me conclude the financial section with a brief update on our liquidity position. As discussed earlier, cash and securities amounted to around EUR 650 million at the end of June. In addition, we continue to have access to an undrawn syndicated loan facility of EUR 127 million. Overall, our debt maturity profile remains well balanced and largely unchanged. With that, I hand back to Michael.

Thank you, Claudia. Turning to our updated end market view for 2026. The overall picture continues to strengthen, although the underlying drivers have become even more differentiated. We continue to expect wafer area consumption to grow by around 7% before inventory effects. This overall growth expectation remains unchanged compared to our Q1 view. The strong growth continues to come from servers. We now expect server-related wafer area consumption to increase by around 46% year-on-year compared to 44% in our Q1 outlook, supported by strong demand for AI applications, advanced logic and high-bandwidth memory. At the same time, the outlook for smartphones has weakened further. Memory capacity and allocation continued to prioritize towards AI-related applications. As a result, less supply is available for other end markets, which is weighing on smartphones and PCs. For smartphones, we now expect wafer area consumption to decline by around 11% in 2026. PCs are also expected to remain soft with demand declining by around 10%. Automotive remains broadly unchanged compared with our previous view with continued moderate growth of around 3%. Industrial applications are gaining further momentum from a relatively low base, including demand coming from data center infrastructure. We now expect growth of 13% for this end market. Beyond the end market demand, inventory developments have also changed somewhat. In memory and logic, inventories at chip manufacturers have largely normalized. We are now seeing indications that memory players are starting to rebuild wafer safety stocks, most likely to secure supply in an environment of strong AI-driven demand and tightening wafer availability. In power-related applications, inventories are improving, but still remain elevated. This keeps weighing on the 200-millimeter market in H1, although we see clear signs of demand recovery for the second half of 2026. Overall, the positive end market trend continues. The above-mentioned safety stock rebuilding could provide additional upside to wafer demand. Let me now translate this market environment into Siltronic's volume and pricing development. The demand recovery is becoming increasingly evident in our business. In 300-millimeter, we're seeing positive pricing developments on low volumes in the non-LTA space. However, these prices are still below reinvest level. In 200-millimeter, we see a strong demand environment in H2. However, our current staffing needs to be adjusted to accommodate these developments. Prices in 200-millimeter declining during the first half of 2026, and we expect them to stabilize in H2 from this low base. As a result, we expect wafer area sold in 2026 to increase year-on-year despite the closure of our Small Diameter business. Although the environment is improving, we still expect an overall negative price impact in 2026. In addition, 200-millimeter product mix weighs on our performance, particularly due to the still subdued wafer power market. We also expect a negative year-on-year FX impact. The average euro against U.S. dollar exchange rate was $1.13 in full year 2025 compared with $1.17 in H1 '26. For H2, our planning assumption of $1.18 remains unchanged. Now turning to our updated guidance for 2026. Supported by the improving demand environment, we have slightly edged up our sales guidance. We now expect the top line to come in low to mid-single digit below 2025. On a like-for-like basis, excluding FX effects and the closure of SSD business, sales are guided to be on or slightly above previous year's level. Our EBITDA margin guidance remains unchanged at 20% to 24%. While sales are expected to develop slightly more favorably than originally anticipated, the positive impact on EBITDA is partly offset by higher freight and energy costs compared with the assumptions underlying our original forecast. We also confirm all other elements of our guidance. With that, we conclude our Q2 2026 results presentation. Claudia and I are happy to take your questions. Thank you very much for your attention. Cynthia, please open the Q&A session.

[Operator Instructions] The first question comes from Constantin Hesse with Jefferies.

It's great to see a more constructive environment finally coming through. I've got 3 questions, if I may. So one is just to understand the pricing dynamics and LTAs. So if you were to close LTAs today, would prices have to be above the levels that you closed the previous one in order to reflect higher costs, inflation, et cetera. So is it fair to assume that you probably will not be doing any LTAs until we see prices being above the peak that we saw in the previous cycle? That's my first question.

Thank you, Constantin. That's a great question. We always said prices need to come up and to cross the reinvest level. So that holds true unchangedly. So we see good pricing dynamics in 300-millimeter outside LTAs, but on a very low volume base. And we would see this to further improve in the near future. And then it would become more attractive to close future LTAs. At the same time, we have to have in mind that LTAs not only governed by price. There's, of course, a whole load of parameters, specifications, volume considerations and so on and so forth. But we're saying clearly, pricing should further recover to come to a reinvest level, and that would be the future LTA framework.

But just to understand, did you say it has to cross the previous reinvest level, so we have to see prices higher compared to the previous high?

It depends then on the specifications and the world moved from 2021, '22 to today, of course, you're right, there were cost increases, inflation, all sort of -- on the other side, we have scale effects in manufacturing. We have a different product mix. So it depends then really on the details. Every LTA is a bit a unique thing. But as we said, we would love to see prices coming up above before we talk about reinvestments.

Okay. No, fair enough. Second question on the cap rate. So I want to drill down a little bit into this because obviously, the communication was often -- was often said that a cap raise was not really in the books. So what I'm wondering here is, I understand that you can always do a cap raise opportunistically and the market environment was pretty attractive then. But what -- I'm trying to really get a little bit more detail out of this is with this cap rise, could this also be a signal that you potentially see the requirement to have to increase CapEx again because of all this new demand that is coming around in '27 and '28 and probably because demand is now reflecting a faster recovery than initially anticipated. So is it may be fair to assume that this cap raise also has a bit to do beyond being opportunistic, also has a bit to do with the fact that you're now seeing the requirement to invest in CapEx potentially faster than what you had previously planned? That's my second question.

So the -- thank you, Constantin. The capital increase was clearly an opportunity which we captured -- and as you know, we're talking about more general terms around this, strengthening our balance sheet, increased financial flexibility. We do not plan to allocate those funds very clearly to future CapEx or to deleveraging or whatever. But for us, it was a really great opportunity to broaden the bandwidth we can act on. At the same time, our statement is clear, we're ramping our fab in Singapore, we're following with that the market demand and at a certain point in time, which we want to also combine with the earlier pricing environment discussions, of course, we need to move on with investments in bringing the machinery and tools further into Singapore. But that's, in a way, an independent question. The cap rise was very good to broaden the bandwidth and let's say, give us flexibility. But at this point in time, we wouldn't clearly combine it with a future CapEx statement.

Okay. Fair enough. Michael, and just to -- if you could just give us an update on where are we on the FabNext? I mean a few months ago, actually a year ago, we were talking about a slower ramp-up of about 100,000. I think we're definitely quite a bit above that now. And I'm assuming you probably still have quite a bit of room left inside that clean room. So when could we see potentially a next round of brownfield investment coming through?

So first of all, you're right, we put the brake a bit on the earlier phase of the ramp in Singapore. I think that's more historic. In the meantime, we are fully back on, let's say, ramp scale following the market demand. So that's running from our perspective very smoothly. By the way, including epi, which we brought into Singapore 200-millimeter for the first time, as you know. So we are quite happy with the ramp there. And with the profile of customer and project qualifications, we set the base to really now ramp the factory. At the same time, the future view on this, I combine it again a bit with the pricing environment. We would take the liberty to look carefully which volumes do we want to onboard going forward. And where do we wait maybe a little bit until pricing recovery is really visible and coming through because we need to see better prices in 300-millimeter to justify more investments also to fully beef up the capacity in Singapore. So it's a bit all the same story. Yes, volume-wise, we're doing extremely well. We see the loading progressing nicely. We see the fixed cost dilution. So it's all nicely evolving. However, we now have conversations with customers that will need to see also price rising to really move into the area where we then could feel more comfortable to talk about future CapEx there.

The next question comes from Harry Blaiklock with UBS.

I guess a follow-up to that last question and comment from you, Michael, in terms of hearing from customers around potentially being willing to pay higher prices for wafers in order to justify new capacity. I guess it would be useful to get some color around your conversations with customers. We hear a lot about leading-edge logic and memory capacity that's getting built out globally over the next few years. Are you having any conversations with them about your capacity and your ability to satisfy that increase in volume?

Yes. Thank you, Harry. I think what we were touching so far from Constantin's question was more near-term demand and the situation. Indeed, in addition to that, we have customers approaching us to manifest and confirm the, let's call it, midterm demand, particularly in the memory space, we see that there is, let's say, the need for customers also talk about, let's say, 2 years, 3 years' time from now about volume developments and talking starts about some LTAs. At the end of the day, it's a bit the same story. Yes, we appreciate those conversations, and we engage in them very happily to understand the market need. But the pricing here, it's the same statement. If we talk about the more brownfield view on Singapore or if we talk about whatever in the future, we need to see prices coming in higher to justify further investments. And I think this is pretty much in line with what some of our peers are also articulating. So from that perspective, yes, different timing perspective and similar conversations.

Got it. Super clear. And then on your comments on pricing in terms of 300-millimeter wafers, LTA is stable. I understand that. But the spot price is rising. I was wondering whether you could quantify that at all, even if it's high level, kind of low single digit, mid-single digit.

Harry, if I got your question right, your question was how does LTA pricing in 300-millimeter compared to current spot pricing? In spot pricing, we still see the indications that some small volumes are coming in already at better pricing. However, talking at the complete spot space, it's still below the LTA level of pricing. And that's what I said earlier, it needs to come up now to really enhance the operating performance that we can talk about further investments at a certain point in time. What we see today in spot pricing is still below LTA level and it's clearly below reinvest level.

The next question comes from Martin Jungfleisch with BNP Paribas.

Two questions, please. The first one is on the demand side in 300. One of your peers this week was saying that customers are now requesting volumes above their LTA volumes. Is that something that you are seeing as well? And maybe you can also share how 300-millimeter volumes have trended through the second quarter and if you saw demand trending up through the end of the quarter, so in June? That's the first question.

Yes. Thank you, Martin. Indeed, demand is moving on, and it's one of the reasons this demand recovery driving also our sales development Q2 versus Q1 and where also the underlying reasons why we could improve a little bit our full year sales guidance. We have both. We have new customers or small customers approaching us around 300-millimeter, and we have some existing customers who are considering how to get upsides. So it's in a demand environment, volume-wise, it's a very nice situation. Coming back to the earlier questions and discussions, this happens still at the price level where we want to be very careful and selective, whom we give which volumes currently and particularly locking in volumes for future directed LTA. So pricing is of utmost importance now. Now the price need to come up to make this whole wafer industry viable and bring us and the whole wafer space into a position of following this whole overall chip growth being announced.

Yes. No, that makes sense. But I know you're not guiding quarterly, but what is kind of your expectation for the third quarter? Would you expect this to be rather like a gradual improvement from Q3 to Q4 or maybe more like a hockey stick one? Do you expect Q3 to be like marginally up? Or is it like meaningfully up versus the second quarter?

I mean you gave the major answer already. We don't guide Q3. But if you take our full year guidance and make a simple math exercise and what we said earlier that we see a more gradual recovery. We wouldn't see explosive or dramatic changes. So we would more see a steady growth over the quarters for the rest of the year in the framework, of course, of the total year guidance.

Okay. No, that makes sense. And then finally, just on 200. I mean, you sounded a bit more positive on 200-millimeter today. Is it fair in terms of utilization rates that these are still lower than, I guess, 2019 or 2023 levels? And in terms of pricing, you also said it's stabilizing. I guess if the trend continues, would you expect you would be able to increase prices maybe towards Q4 this year, maybe early '27?

So the 200-millimeter situation has been very difficult. I think we were very clear and vocal about that, including H1. And last year, it was really volume and price-wise very, very difficult. So this year now over the year and particularly around the second, third quarter, we see the volume recovery still at a very low price level. UTs are coming up. I would say it's fair to say we're still below '22 UTs in 200-millimeter. However, now it's even more important that the prices also pick up because price went down so heavily that it's of utmost importance that we also see the price recovery. In addition, those nice additional volumes that are coming into the game now are not delivering a lot of, let's say, revenue or even bottom line contribution because of the price effect I was mentioning. And in addition, we have still a negative product mix as some of our more margin strong 200-millimeter products are in low demand still.

The next question comes from Maissa Keskes with ODDO BHF.

I will be back to the LTA. So can you please specify what portion of LTA is due to expire in '27 and in '28? Hello?

Yes. Can you hear me?

Yes. I just want to ask again about the LTA. What portion of the LTA is due to expire in '27 and in '28?

So our overall situation is that around 2/3 of our business is in LTAs. The majority of that is in 300-millimeters. And we do not see an LTA cliff of major LTA changes. However, there are smaller ones, which we could then hopefully launch under new terms in '27 and '28.

Okay. So as demand continues to recover, there is a growing discussion about a potential wafer shortage, especially as some part of the semiconductor industry is already experiencing supply constraints. So what's your view on supply-demand balance over the next few years? Do you think that also the wafer industry could enter a period of shortage?

So for the time being, as we talked about pricing already a lot, there seems still to be a bit -- maybe, let's call it, a bit more wafer supply than demand. I would say that could change pretty soon in the next quarters. And the true indicator for all of us would be the price pattern and the price behavior. We need that price change. I think I was very vocal and clear around that. And we want to see it hopefully happening in the very near future. Otherwise, people like us will consider how to spend money on further capacity, which would then further shorten demand and eventually price need to come up to bring this back in balance. As you know, the chip industry enjoyed very nice quarters and even years when we look at the memory space. For the wafer industry, it was much more difficult, and now it's the time that this has to be rebalancing.

We will take our next question from Veysel Taze with Bankhaus Metzler.

Veysel Taze. Claudia, a question regarding your prepared remarks. I'm not sure if I got that correct. FabNext, by the end of the year will be not -- the utilization will be at group level or you said it will be not a drag on profitability anymore, and it will be on group level. I'm not sure if I got your statement correct, if you could repeat that, please.

My statement was that by the end of the year, FabNext EBITDA margin will approach group margin level? Or in other words, the dilution effect will fade out.